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Natural gas futures closed lower last week, but well-enough off its low to keep it in a position to challenge the previous week’s multi-month high at $2.743. The introduction of cooler temperatures in the Midwest and parts of the East Coast weighed on prices as well as worries of more robust stockpile injections in coming week.
Additionally, uncertainty over when Sabine Pass LNG feed gas resumes also kept buyers on the sidelines. The weekly government storage report came in within the range, but it did indicate some signs of supply/demand tightening. However, it wasn’t enough to fuel another breakout to the upside.
Last week, October natural gas settled at $2.588, down $0.069 or -2.60%.
U.S. Energy Information Administration Weekly Storage Report
The EIA weekly storage report showed a build of 35 Bcf for the week-ending August 28.
According to the EIA, working gas in storage was 3,455 Bcf as of Friday, August 28. This represents a net increase of 35 Bcf from the previous week. Stocks were 538 Bcf higher than last year at this time and 407 Bcf above the five-year average of 3,048 Bcf. At 3,455 Bcf, total working gas is above the five-year historical range.
Short-Term Weather Outlook
While cooling temperatures are expected over much of the central United States, NatGasWeather said overall demand could continue to prove strong during the week following Labor Day, driven by “hot conditions over the West and very warm conditions” over the South and areas of the East.
Brad Harvey, a senior meteorologist for Maxar’s Weather Desk, said summer 2020, through August, was the third hottest on record, with a run of consecutive days between June 18 and August 2 on the hot side of the 30-year normal high temperature.
But analysts say prices are highly dependent on continued heat waves, given still soft commercial energy needs and light U.S. liquefied natural gas (LNG) demand amid the ongoing coronavirus pandemic, Natural Gas Intelligence (NGI) wrote.
Weekly Forecast
“The market is struggling to pin down where fair value is,” Bespoke said. “It is difficult for us to see a bullish case for the October contract, given some risk that containment creeps back into the picture.”
However, while temperatures have begun to cool in the Midwest and forecasts call for broadly milder conditions in mid-September, late summer heat permeates the West and parts of the East, propping up near-term demand, according to NGI.
“Given the time of year,” Bespoke said, “heat needs to be strong, relative to normal, in order to significantly move the needle.”